Understanding How The Innovator’s Dilemma Affects You

Many people bandy about the definitions of “disruptive technology” or “the innovator’s dilemma” without ever having read the book and almost universally misunderstand the concepts.

Let me start with Professor Christensen’s definition:

“An innovation that is disruptive allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill.”

Professor Christensen uses real data from the disk drive industry to make his points. Reading it felt like read a university book for an economics class and no wonder since he’s a professor at Harvard Business School. It is not a beach novel to be sure. The framework of his book has profoundly altered how I think about the technology market and affects how I thought about building my businesses and how I think about investing in venture capital.

The thesis of the book is that incumbents in markets – especially large and well entrenched markets – seldom survive fundamental technology changes in their industries. In a world where we’ve seen newspapers crumbling, record labels struggling and Blockbuster imploding and making way for the rise of Netflix it seems kinda intuitive to most of us but we can’t quite place why this happens.

But understanding the framework rather than just thinking “those dumb fucks don’t get it” is very useful for thinking about how markets evolve. It should affect how you think if you are an incumbent but also if you’re a startup.

Let’s start with the incumbents position in a market. I’ve characterized it in a chart below. It is often the situation that the incumbent offers a product that is vastly superior in the market in terms of performance or functionality. This is important because the customers they serve (the red line) demand a product that meets their complex requirements.

Think of incumbent line as Siebel and the red line as the large enterprise customers that they served who demanded 1,800 features and sent out RFPs with checklists that had to be ticked off to even be in the running for their business.

When new companies enter the market they really have no chance to initially unseat the incumbents because the performance gap is too large and the costs / time of catching up too unachievable. In fact, the incumbent is usually very dismissive of this new competition as our the large buyers of the incumbent’s products.

And weirdly the buyers of this technology often have a vested interest in buying from the incumbent. They see it as a source of differentiation for them as a company because their less financed competitors can’t afford it (and often their careers are wrapped up in the multi-millions of dollars they’ve spent implementing it). In short, they ain’t just gonna throw that away for some new fangled tech toy.

So the startups tend to focus on totally new customers. They try to capture people that didn’t buy the expensive stuff in the first place because they couldn’t afford it. Often the startups are actually serving a slightly different kind of customer or a slightly different market need. The thing about “disruptive” technology as I interpret it is NOT that it is a major breakthrough in performance or functionality as most people conceive it. It is often LESS performant. What is “disruptive” is that is also dramatically less expensive. And the providers take a much lower margin – they have nothing to lose, nothing to protect.

Enter Salesforce.com. In 1999-2000 they weren’t doing enterprise-wide installations at Merrill Lynch, Dell and Cisco. That would have been laughable. They were serving a latent market need for mid-sized businesses to use CRM. They offered a product that didn’t even try to compare with Siebel. In fact, they tried to totally redefine the market. “Siebel cost you $2 million and 18 months to implement? How about $30,000 and 3 weeks?” They didn’t exactly grap the top end of the market.

So what did happen? And what does happen in many other industries? First, over time Salesforce.com’s technology got better and better yet the price didn’t shoot up dramatically relative to Siebel. And after a few years enterprise customers started looking at the cost disparity and saying, “maybe Salesforce.com is good enough to meet our requirements?”

Incumbents feel threatened. Often their response isn’t to radically cut cost and try to hold on to customers. They can’t. They have big installed bases. They have existing customers who already paid big prices who would be seriously pissed off if the next guy bought the same thing for 10x less. The incumbents have expensive product features to maintain and often expensive sales channels. Think Compaq when Dell first went direct over the phone then Internet.

And if the incumbent did dramatically cut costs all they would seemingly do is start following the lead of the new entrant? There you have the innovator’s dilemma. The incumbents curse. You can’t take a $5 billion revenue stream and say “Fuck it. They’re going to eat our lunch anyways – let’s just cut our revenue to $1.5 billion and wipe ‘em out.”

So they do the opposite. The increase spending on features / performance / functionality. They gather with their cadre of high-requirement customers and have planning sessions about how they can make even more performant products.

But here’s the thing. Often customer requirements don’t grow exponentially relative to their existing line. And as you trace the red line in the graph above as it gets closer and closer over time to the new entrants functional offering there is a huge and rapid sucking sound that pulls the bottom out of the market as waves of customers “trade down.” And Salesforce.com becomes a $15 billion company doing $1.2 billion in recurring run-rate revenue and growing while Siebel is sold to Oracle for a mere $5.8 billion.

The take aways for me are:

The incumbent eventually realizes what is happening to them. They are run by smart & shrewd people or they wouldn’t become leaders in incumbent organizations in the first place

They are blinded for too long – reinforced by big revenues & profits that come from customers that corroborate their misinformed views of the future because they have a shared & vested stake in status quo

Disruptive technologies are often those the are less performant and feel “chintzey” relative to their well-heeled competitors. They are radically lower in price. They initially create deflationary pressures in a market. They are nearly impossible to react to. But while the price points are dramatically lower this often encourages more users, more innovation in the eco-system and therefore often a bigger market opportunity than even the incumbents perceived

I am reminded about how dismissive traditionally television media is about YouTube – even to this day. About how dismissive traditional print was about blogs or the airlines views the “peanut serving” Southwest Airlines. About how Microsoft viewed Google Apps. Sony, the iPod. US automakers made the mistake with the “low end” Japanese manufactures until the Toyota became the Lexus. What future have telcos for call-based revenue in the era of Skype?

I know that Clay Christensen has written a book that proposes solutions for incumbents. I haven’t read it. Maybe I should. But anecdotal evidence tells me that incumbents eventually struggle to massively disrupt their own large and profitable businesses – that change has got to come from outside. Some have tried to artificially create “innovation labs” from within but I struggle to believe that this model will work for disruption.

Perhaps the best they can do is to help fund their successors. Perhaps they can spawn the next generation of innovators and leave a footprint of their DNA along the way. Or at least diversify the future fortunes of their shareholders in the way that Yahoo! earned handsomely from Google’s success. I don’t know – it may not be intellectually or emotionally possible.

But if I studied every incumbent industry around me and saw the destruction that technology and the Internet was bringing I would at least want to have an ownership stake in my pillager’s future cashflows if I knew the sacking of the castle was inevitable.

Understood and as an entrepreneur I felt the same way. Still – worth thinking about at a startup. Especially if the ______ is Google or Facebook.

http://bothsidesofthetable.com msuster

Exactly! Great points all. That's why people in sales at startup need to find “egg breaker” decision-makers who are willing to take personal risks to make great decisions to get ahead.

http://bothsidesofthetable.com msuster

awesome – or – awe.sm eventually they're forced into it anyways. Think about what the newspapers have been forced into in the past 2-3 years. Imagine if they had done it 10 years ago. Still, shareholders wouldn't thank you. Innovator's Dilemma.

http://bothsidesofthetable.com msuster

worth reading IS?

http://bothsidesofthetable.com msuster

thanks. I'll pick up. I always assumed it would be a lame attempt at showing that the incumbents could respond. Seems from other comments it's not that.

http://bothsidesofthetable.com msuster

Jobs is a once-in-a-generation leader. He is the kind of guy who would do it. Actually, Zuckerberg strikes me as the same.

http://bothsidesofthetable.com msuster

thanks for suggesting

http://bothsidesofthetable.com msuster

It was “transformation” and actually you could say “disruptive” if you want. But I was pointing out that the person who popularized the definition, Christensen, had a very specific definition of it and the iPhone didn't meet that definition.

http://bothsidesofthetable.com msuster

It was “transformation” and actually you could choose to say “disruptive” if you want. But I was pointing out that the person who popularized the definition, Christensen, had a very specific definition of it and the iPhone didn't meet that definition.

http://bothsidesofthetable.com msuster

Yes. Absolutely.

http://bothsidesofthetable.com msuster

would innovator's solution be the next one to buy? or …?

http://bothsidesofthetable.com msuster

thanks for sharing link.

re: Kno – Not an expert on proposed cost structures. Whether it meets Christsen's definition or not – it clearly aims to be transformation to an industry.

http://hdemott.wordpress.com Harry DeMott

yeah. I would do that one next – then go into anything else that interest

you. I've read most of them. All good.

http://bothsidesofthetable.com msuster

I wasn't bored – I LOVE data rich books. I WAS riveted. But I know some people glaze over when they see data so I wanted a fair warning. Kind of like the books Guns, Germs & Steel or Collapsed … two of my all-time favorite books.

http://www.linkedin.com/in/rajatsuri rajatsuri

Clay's conclusion seems dangerously simplistic (kind of my main criticism of business books is that they take 1 idea and write 300 pages about them so they can sell it in book form, rather than just an article in a magazine – or a blog post. Imagine how many books Mark could write if he wanted!)

Clay's thesis from wikipedia, “Generally, disruptive innovations were technologically straightforward, consisting of off-the-shelf components put together in a product architecture that was often simpler than prior approaches.”

This seems wrong. Lower cost structures are just 1 example of a category of disruption. You can cherry pick examples for different forms of disruption. Here are some examples of modes of disruption

- Lower cost structure (as in the book)- Better quality products . For example UberCab and AirBNB aren't cheaper than hotels/taxis. But they provide better experiences- Distribution advantages (which allows Facebook to compete effectively with Foursquare for example, or back in the 90s, MSFT to compete with Netscape)

http://www.larovo.com/ Glemnitz

THX for sharing this. It's really worth reading.

Startupgenie

You paint a sad picture of the state of corporate innovation. However, BigCo's can pursue many courses to innovation, among them is to let the startup and VC take all the risk while proving the viability of the market/technology/business model, and then swooping in and buying it for a premium. Most BigCo's prefer this approach and have funded large venture capital teams to scout, prioritize and invest in the best opportunities that have a strategic fit to their company growth plans. Many large companies have perfected this approach, GE, Cisco, Oracle, Microsoft, and lately, HP, to name a few.Even the best 'innovators' bought their way into markets:- Edison purchased the patent on which his long-life light bulb was developed- Gates paid $50,000 for the core code that became MS-DOS- Jobs purchased all the core technologies that created iPod/iTunes, inventing none of it internally

But I don't recommend the inorganic path because it's expensive, and call me 'old-school', but I don't think it is 'real innovation'. I believe that most corporations can do a better job of innovating new lines of business themselves. As you point out, they need to be willing to cannibalize their business. This is one of the findings in an awesome study by Rajesh Chandy, titled 'Radical Innovation in Firms across Nations'. He outlines the 5 traits of successful innovating companies, amongst them is 'willingness to cannibalize'.

I work with many large companies to build innovation programs and have helped innovate $1B businesses. Over the years, I have learned there are straight-forward ways for large companies to innovate new business models and capture new revenue streams, even in this highly disruptive time caused by brilliant innovators who are optimizing the power of the web in ways no one expected.

http://twitter.com/scrollinondubs Sean Tierney

Mark, the Innovator's Solution is worth a read. The oversimplified advice for incumbents in that one is to spin out a skunkworks business unit that operates under independent management and resides outside the walls of the existing business. They act like a startup trying to disrupt the existing business. Failing to do it this way and trying to innovate under the same roof inevitably leads to clashes of interest and poor alignment that derails their efforts. And mingling the teams stifles the thinking of the guys who are supposed to be innovating.

Mike – agree with you. The iphone is a sustaining innovation – meaning it extended the mobile phone's capabilities such that it could win market share.

However, you can also look at the iphone as disruptive in the sense that it combined a couple of technologies into one piece of hardware at a disruptive price to the combination – phone, mp3 player, and handheld computer/pda. So in fact it could be considered the “low cost” competitor to these products. To further the analysis, it maybe also didn't have every feature that each one had on it's own, but it had “enough to get the job done”.

Finally it also provided entertainment and since the alternative to entertainment is boredom and most people can't stand boredom and are willing to pay to avoid it, that factors into the demand for the iphone as well!

joeagliozzo

Mark – see my comment above – I think maybe it does meet the definition of disruptive if you measure it against the three major devices an iphone replaces – mp3 player, phone and handheld computer/pda.

joeagliozzo

I agree with this as well – I have used salesforce extensively in small business settings and found that nobody else but me was interested in putting in the time to learn how to use it. I was only interested because I enjoy the heck out of technology and web services. The average sales guy who is forced to use Salesforce and take the training hates it (and many hate it even more after training). Part of the reason is because it is so time consuming to learn how to use and actually use. The salesperson often feels they have better things to do (like sell). So it seems that there is a need for something similar and quicker with less features – I know there are tons of companies targeting this space.

joeagliozzo

I think the problem with Innovator's Dilemma and Blue Ocean (especially Blue Ocean) is that everything seems very obvious in hindsight, but darn, it sure must have been hard to predict that stuff was going to work in real time.

Take Yellowtail wine as cited in Blue Ocean. Who the heck knew there really was “a market for people who are scared of wine brands and just wanted a simple to understand brand that was good” (paraphrasing). Really? I would have never guessed that was why Yellowtail took off. After I initially read the book, I asked my wife (the main grocery buyer and also wine lover in our house) why she bought Yellowtail and the answer was because it was featured at Trader Joe's in an endcap, the price was right and the label was “cute”! Admittedly a small data set, but I couldn't reconcile that will at the “axis of competition” stuff in BO. It seemed TJ's display location and pricing had as much or more to do with the purchase decision as anything else.

Sylvia E

Before there were subscriptions there were usage based models (yep – I am that old and went through that change in business model paradigms). The huge downside with “pay as you” models is that people think twice about using the “thingi” if they don't have an “all you can eat” model. Or – a free alternative which is paid by advertising or a central funding entity. So – pay as you go needs to be set up real smart. But so can be subscriptions models.

http://www.azteria.com Lloyd Fassett

Yeah, well I was trying to be short and dispasionate, but I noticed the exact same thing with their analysis of Cirque du Soleil. Of course it's great to be differentiated in a positive way (and if you're an actor differentiated in any way), but it's the finaciers that have to put up the cash and trust a market will emerge.

I figure testing a CPG product or a new type of circus have to have some decent start up costs to just test them. I suppose that's what drives particular investors and entrepreneurs though is rallying the troops through the mountains and promising green valleys on the other side. Kim and Marborough are smart and the analysis is great, but they are consultants and don't put chips on the table either.

Ultimately I wonder why more smart people don't start businesses and think it's an emotional decision and fear of being stuck in a loooooong development cycle to find those green valley / blue ocean / new markets. On average, most people don't like the adventure, even if they're smart and suspect there's maybe something there.

http://roberttercek.com Robert Tercek

Good point, Mark. I've noticed this phenomenon within traditional media companies. They are quite aware that their business is subject to disruption by low-cost substitutes (such as web video, games, user-generated media, and sponsored or branded media), but they seem to be unable to adjust their business model and business process to contend with it.

This explains the “circle up the wagons” strategy adopted by cable channels and MSOs: together they plan to double down on the existing cable TV business model by ringfencing it from the open web. They'd rather preserve what they understand than embrace what's new.

I can't blame them, given that pay-television is the best model for profit maximization ever invented in mass media. But this approach does not equip them for survival if (and when) the pay-TV barrier is breached by over-the-top video offerings and disruption by low cost competitors.

In other words, the strategy currently adopted by most major media companies and the cable operators will increase, not decrease, their longterm vulnerability because they are more exposed to disruption and less well adapted to the new environment.

MITDGreenb

I too am a big fan of The Innovator's Dilemma. Having seen it at some large companies, I'd offer a couple observations. Most people view the book as you do, Mark, in terms of (levels of) features and price. However, there are some organizational and business reasons that make breaking the dilemma almost impossible, and I think these do not get mentioned enough:

1) The account executive. At the incumbent, the account executives are well-paid to have a lasting relationship… and to carry a large quota… with their accounts. At a multi-line IT services company, that quota is not infrequently $100M or more. And the exec is the gateway to the account. Now consider your innovative product in this large company. It's inexpensive… so it won't make even a tiny dent in the exec's quota. And it's lower performance, maybe not as reliable… so there's a risk it won't meet the customer's needs… and that risks the relationship. No account exec will let you endanger the whole of his/her relationship in return for a rounding error on his/her quota! And THIS is the underlying reason why the disruption comes from serving other, less-demanding markets first… usually by single-product innovators.

2) Brand. Often the incumbent has a lot of brand equity tied up in reliability and longevity. “No one ever got fired for buying IBM.” The downside risk to brand equity from a failure may far exceed the upside value of introducing an innovation. What happens, then, is that heavyweight product introduction processes are put in place to stamp out the risk. Some would say this is “bureaucratic big company stuff,” but one should realize it is a rational outcome in company with a valuable brand. But that heaviness is expensive in both money and time to market, making it impossible to bring a low-cost innovation to market successfully.

What can be done? Today, at a discussion of SaaS pricing at the Mass. Technology Leadership Council (MassTLC), there was an interesting discussion about how SaaS facilitates a low cost of sales, a low cost of entry, and a low cost of distribution. Together, these reshape the business… whether or not the software feature set is less/greater than the incumbent. An incumbent could challenge therefore via delivery/channels to reach the broader segments while keeping current customers in the feature-heavy camp. This would harvest some revenue and innovation from the broader market to small benefit for the incumbent but potentially fatally starving the upstarts. Think of it as freemium in reverse. Of course, it's easier said than done, especially in the face of brand risk.

http://bothsidesofthetable.com msuster

A more eloquent version of what I was trying to say

http://www.binpress.com Eran Galperin

Fantastic post, really makes me want to read The Innovator's Dilemma ASAP. In fact, I have a 10 hour flight tomorrow, if I find it at the airport bookstore, I'm set.

It makes me wonder though about market leaders that don't compete directly on price. Google, for example, offers some of the cheapest online ad prices. Their strength actually stems not from the paying customers (advertisers) but the users who get their search engine for free. The massive amount of the latter ultimately pulls in the former.

How do you disrupt a company like Google? it can't be on price, so it has to be on performance. A lot of smaller ad networks and niche sites offer ads that convert better for specific audiences, however they can never grow to the size of Google because they will both lose their niche and they don't have the targeted searches, so they are not really disruptive for Google – more complimentary. Any thoughts?

http://reecepacheco.com reecepacheco

“People are more likely to walk in the front door if they can see the exit is wide open.”

Well said…

http://reecepacheco.com reecepacheco

Innovator's Dilemma has been in my Amazon Wishlist forever. Time to bump it up to the top…

Even at a small scale, this is already what I'm seeing with my business/in our industry.

Mark – I know you don't have all the data points in this case, but do you have any advice for when an incumbent – who sees the writing on the walls – wants to work with an innovator (in this case, us)?

I don't think they're ready to make acquisitions yet (and we don't really want to sell right now), but they are looking at what we're doing and I may be meeting with their CEO soon.

The way I see it, it's not a zero-sum game… they could get better reach from our disruptive product and we could use their brand to grow ourselves… Thoughts?

http://twitter.com/mikeschinkel Mike Schinkel

“I wasn't bored – I LOVE data rich books. I WAS riveted.”

Then we are kindred spirits.

“Guns, Germs & Steel” or “Collapsed”

Haven't read, heard about the first, but will definitely have to look at them given your endorsement.

My favorite all time business book is still Kevin Kelley's 1998 “New Rules for the New Economy.” Must of it has become mainstream thought now but it was completely novel back in 98. I only wish I had taken more advantage of its lessons early on. You can read it now online here:

Relevant and inspirational from a microeconomics perspective but I can't help thinking about the macro picture: aren't developed countries the incumbent trying to come up with some fancy sophisticated products to comfort their established markets and emerging countries the disruptive entrants ?

On another point Mark, you said in one comment:

“5. Incentivized purchases – some people don't mind doing a survey to get free loyalty points or a new game play. This isn't me but some people.”

Since this is a key aspect of my business, may I ask what kind of incentive would make you interested in taking a survey ?

coolRR

A little typo correction:

“In fact, the incumbent is usually very dismissive of this new competition as our the large buyers of the incumbent’s products.”

I think you meant “are” instead of “our”.

http://lmframework.com David Semeria

Your career in VC has taken off like gang-busters, Mark – but you're not Yoda yet….

http://www.Net-Results.com Michael Ward

This may be a 90 degree turn from the topic but as I read this I wondered whether this may be a good analogy to nations with United States as the incumbent and China, India, etc. as the disrupters. I'm making no predictions here, but I'd hate to see the U.S. end up like Siebel. 90 degree turn over, sorry for the disruption.

http://www.twitter.com/aainslie Alexander Ainslie (@AAinslie)

Auto-Cannibalization.

http://www.stealthmode.com hardaway

I have always loved this book, and thus I love your post ,too. All this feeds right into the lean startup movement and into the disruption of traditional VC, too. It shows you how incumbency builds bloat. Microsoft. Now Google. Size is not an advantage in the world today. In fact, it's a disadvantage.

Keep writing; you're awfully good at it:-)

http://technbiz.blogspot.com paramendra

One of your better posts.

Dave W Baldwin

Sometimes you need to open your mind up and see outside the box. Google is not the end all to beat all, though they will bring happiness to the many they will buy during their cycle.

That is not to say the other side of the cycle is death, but what they do best will be a segment of the next big thing…and that thing will be possible due to actions from many innovators.

Dave W Baldwin

The rising nations are going to try to disrupt nations one level up. Yet, we are entering into a true world economy where it is not the Cold War anymore.

In other words, it will be a matter of incumbents vs. innovators against each other within the countries you mention and without. Do not fall for the old gripe about the Chinese only being theives…for their younger generations are starting to think of what to build to market at home.

On the subject of India, I'm still blown away by no one discussing how much they are invested, using the analogy from someone earlier, in the buggy whip and the automobile is staring them in the face.

Dave W Baldwin

This is a great post, and one people need to think about. Using the Law of Accelerated Returns, the ability to control overhead will quicken the pace of acceleration. This is the plus side for the innovator. The Incubator will always bloat either on the side of too many employees doing too little for too much salary (plus all the time spent justifying) or the employer who will always try to pay as little as possible resulting in too much turnover and their company stays too narrowly focused.

I would suggest fashioning a game plan that is not so much narrow in focus, but is appealing to multiple segments and applicable to what you know is going to be here 2-3 years from now. This enables one to carefully put the pieces in place. Since your product would both appeal and/or compete against more than one incubator, you're able to study many exits.

To do that is hard, since everyone thinks you're nuts during development (you say what is coming, yet they can't see it). If you maintain integrety, not spend the riches you do not have and stay the course, one can sell to Edison, Gates and/or Google for a satisfying price. Besides, the innovative team who does this is already working their next two or three innovations.

S Matteis

Great post Mark.

Large organizations will always struggle to have to 'reinvent' all that they have estalished over a long span of time. To 'distroy' value and kill a revenue stream to react to disruption would be seen as an act of insanity by shareholders.

Take the tale of MSFT and GOOG in the enterprise sw market. MSFT could have gone all the way and crash their very profitable ( and almost monopolistic) line of business and true lifeblood to counter GOOG. Would have mattered? GOOG could afford the price war because of a lucrative business in which they claim semi-monopoly (search). So it seems msft didn't have much of a chance. Other than what they are pursuing now (moving windows/office live to cloud services) MSFT could have invested early in GOOG so to kill any bellicose attempt in by goog in enterprice sw. but hey who would have thought that MSFT would have struggled so much to compete with GOOG.

Interestingly their pocket are deep enough that MSFT could raise the bar and invest into Bing to try and combat goo g's cash cow. And after 10 years of struggle they seem to be on the right path.

So in this case MSFT not having bought GOOG has forced even greater innovation as the two (msft v.s. Goog) continue fighting feature by feature in both markets (search and enterprise sw)

To confirm your thesis though I am willing to bet that someone else will come in to disrupt both markets. And neither GOOG nor MSFT will be quick enough to anticipate and invest into the new challenger.

Noname

I am struggling with this….This is what I got from a Director (who is a decision maker) for a company (customer).“If I choose you (the startup) and the whole thing fails….I would be fired. If I choose xyz and the whole thing fails then I could claim “I went to the biggest solution provider….where else could I go”. I would not be fired”

Now I am approaching the President of the company ( The director's boss's, boss's, boss's boss) with external influences (Regional Chamber of Commerce, CEO of my incubator etc.). This is with the inclination that, if the message “Let us try a pilot with this startup. From their background seems like they can execute”. My gutt tells me that if this message comes from Top Down then the director will roll up his sleeve and get to work.

Thoughts?

http://twitter.com/DanielRincon Daniel Rincón Hanna

Extremely interesting and ever-relevant topic.

I believe that customers provide the most important signal about potential discontinuous changes in an industry; and I have used the following questionnaire to guide this conversation:

1. Customers:- complaints about overly complicated and expensive products?- features or services that are not being used?- customers who lack the ability or the money to use the product?

Honestly, the share price chart? Gimme a break. Look at MSFT revenues, profits. Up. Up. Up. Up. Why not just go back 10 years and look at the share price chart, its even worse. And completely meaningless. Wall St idiots once overvalued MSFT and now probably undervalue it.

Kevin is right, they are “killing it”. You talk about MSFT as it is one business. Its serveral businesses, and two of them are killing it, have killed it for a long time, and dont appear to be slowing down very much. When was the last time you pulled up a MSFT annual report?

No need to torture the reality of every situation to fit a mental model you have. The incumbent isn't always going to be pushed out. The reason MSFT excel, word, powerpoint etc havent been taken down by the forces which Christensen discusses is that they are already cheap. Its already a low end product. There is no real benefit to changing to a cheaper spreadsheet program for example. The $$ saved would be far outweighed by the lack of broader familariaty. There is such a large network effect to MSFT's products. Christensen has a useful mental model for thinking about certain situations. Not all.

Its mindboggling that you can comment on a book which has been around for ages and all these posters think you are a genius for bringing it up. Not to suggest you aren't a smart dude, but wow.

http://twitter.com/LuDoan Lu Doan

Mark. Thanks for sharing your insights on this book. I have another book, Yes! 50 scientifically proven ways to be persuasive, to be really relevant and useful. Would you consider adding a section to your blog with a list of books that you would recommend? Thanks for all the great info!

jeffsolomon

Awsome. Ok, so now SFDC is the incumbent, what's going to happen to them?

Tkejlboom

It's really simple from my perspective. Every in every NPI, the question comes up, “Is this going to cannabalize sales of existing products?” That management asks that question at all guarantees that someone will come along and “Eat that company's lunch.”